Invest the surplus in ‘world’s best workforce’

Date Published: 12/12/2013

Author: Dane Smith, President

ST. PAUL LEGAL LEDGER CAPITOL REPORT

As sure as a cold front follows a December snowfall, the end-of-year economic forecast and the state budget projections bring on the howls that Minnesota government is too big and taxes have to be cut.

The latest forecast shows a $1 billion variance to the positive, and evidence abounds that Minnesota’s economy is performing well above national averages, despite predictions that the 2013 tax increases would be bad for business and slow our recovery.

For the anti-government types, however, it doesn’t matter whether the economic forecast shows a surplus or a shortage. If it’s the former, government is growing out of control and tax rates must be slashed. If it’s the latter, government is living beyond our means to support it, and spending must be slashed — taxes too.

Fortunately, polling consistently shows that most Minnesotans in good times favor a common-sense mix of tax reductions, some additional spending (also known as public investment in schools, roads, health care and other public goods), or restoration of budget reserves. In bad times and shortages, most Minnesotans sensibly favor a mix of revenue increases, budget cuts and accounting shifts or use of reserves.

And although election-year dynamics last week created a bipartisan reaction that immediately prioritized repayment of shifts to school districts, and tax cuts, much of this surplus really must be earmarked for further public investment in human capital and infrastructure.

These are among the best investment opportunities:

n Dramatic progress was achieved on early childhood education funding in the 2013 session, but the funding level for the new scholarship programs will only support about 10 percent of the at-risk families seeking high quality pre-kindergarten programs. Economists and business leaders argue that those investments make a huge difference in later school success, and are crucial to Minnesota’s economic viability. Almost 40 percent of our kids in public schools are in families with incomes low enough to qualify for the reduced price school lunch program, and as many as half our kindergartners are not as prepared as they should be for school.

n Minnesota’s investment portfolio in K-12 education was sensibly recast in the 2013 session under a new label that describes its purpose as “World’s Best Workforce.’’ School districts are being required to plan for closing achievement gaps by race and income, and improving readiness for post-secondary completion, and they will need more resources to do this vital business-building work. Adjusted for inflation and as a percentage of personal income, our investment in this imperative has lagged and has fallen considerably below our effort in the 1990s. Some progress also was made in 2013 for funding higher education requests, providing tuition relief for families, but investments that improve the quality and reduce the costs of higher education remain a top priority. Our MnSCU and University of Minnesota systems properly should be seen as engines of our prosperity.

n Dayton administration officials and a broad coalition of business and public policy groups are making the case for billions of dollars in overdue improvements to highways and expansion of our light-rail and transit systems. Minnesota Transportation Commissioner Charlie Zelle notes that Minnesota now ranks 38th in the quality of state highway pavement. Other regions are moving ahead of the Twin Cities in light-rail and transit development, putting the Twin Cities at a competitive disadvantage.

n Some $2.8 billion in statewide bonding requests for infrastructure improvements — for affordable housing, college campus facilities, zoos and museums, civic centers, recreational trails and parks — is pending. And although these investments are achieved with debt and borrowing, not a demand against the current projected surplus, they do represent a commitment of future state funds for debt service.

These investment strategies enjoy tremendous statewide support, from business groups as well as from religious, nonprofit and union leadership. Among the broadest and most impressive coalitions, each consisting of dozens of groups, are MinneMinds, pushing for early childhood investment; MoveMN, a new coalition committed to the new transportation investments; and Invest in Minnesota, a sturdy group of faith, labor and charitable groups that has long supported ample public investment and a more progressive tax structure to finance it.

A bottom-line consensus has emerged that Minnesota, after a decade of “no new taxes’’ and gradually declining levels of public investment, can afford to put more dollars toward advancing the public good and reducing inequality, our biggest problem right now.

These key facts support the consensus: Our official “Price of Government’’ index (which measures state-local taxes and revenue as a percent of total personal income) remains significantly lower than it was in the 1990s. Our ranking on taxes and spending among other states is not out-of-whack, and even low for us, given our communitarian culture and political tradition. We rank 15th in total state-local taxes as a percent of income, and 25th in total state-local expenditures as a percent of income (partly because we rely less on non-tax revenue and federal subsidies). And those at the top of the heap economically – in the top 1 percent or 10 percent – have a greater share of income and wealth than they’ve had since the 1920s.

A recent Winona Daily News editorial summarized with forceful logic the case for public investments that serve both the common good and business growth. Noting recent expansions of high-tech companies in southeastern Minnesota, the editorial argued that more and more firms, “especially those built to serve a modern economy and poised for big growth, are choosing to locate not in places that only promise low taxes, but in those that ensure a balanced regulatory system while providing exceptional resources and opportunities for education, environment, arts and culture.’’